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Monetary Policy in a Developing Country: Loan Applications and Real Effects
Author:
Charles Abuka null

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Ronnie K Alinda null

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Ms. Camelia Minoiu
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José-Luis Peydró null

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Mr. Andrea F Presbitero
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https://orcid.org/0000-0003-4622-941X
Series:
IMF Working Papers
Volume/Issue:
Volume 2015: Issue 270
Language:
English
Publication Date:
23 Dec 2015
DOI:
https://doi.org/10.5089/9781513529813.001
ISBN:
9781513529813
ISSN:
1018-5941
Pages:
36
Keywords:
WP; bank balance; Monetary policy transmission; Bank lending channel; Bank balance sheet channel; Developing countries; lending rate; demand shock; market power; bank capital; Loans; Bank credit; Credit; Financial statements; Liquidity; Sub-Saharan Africa; East Africa
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The transmission of monetary policy to credit aggregates and the real economy can be impaired by weaknesses in the contracting environment, shallow financial markets, and a concentrated banking system. We empirically assess the bank lending channel in Uganda during 2010–2014 using a supervisory dataset of loan applications and granted loans. Our analysis focuses on a short period during which the policy rate rose by 1,000 basis points and then came down by 1,200 basis points. We find that an increase in interest rates reduces the supply of bank credit both on the extensive and intensive margins, and there is significant pass-through to retail lending rates. We document a strong bank balance sheet channel, as the lending behavior of banks with high capital and liquidity is different from that of banks with low capital and liquidity. Finally, we show the impact of monetary policy on real activity across districts depends on banking sector conditions. Overall, our results indicate significant real effects of the bank lending channel in developing countries.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund